This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

I'll go further: the case for the multipliers being even higher now is very strong indeed as the impact of recession has grown.

If ever there was a time for the Green New Deal that I and others called for in July 2008, before the crisis really started, this is it.

19 Responses

Whilst the sentiments and logic behind the Green New Deal are sound, the political will to fight on that many fronts at once is likely to end the war before it begins.

So how does one deliver those sensible proposals without Government funds.

The answer lies in the story of money and what it incentivises and motivates people to do. Colonise. Steal. Lie. Consume.

But a new story is emerging – one about an alternative currency that is backed by time.

It’s only ever going to be issued for positive contributory behaviour.

It’s going to become the common currency for the common people that do common good?

Oh yeah?

Even though they’re age-old concepts, timebanks are the new big thing in the US, Greece and Spain. People with no money but plenty of time working together to exchange their own goods and services for other people’s goods and services.

To begin with this alternative currency will be distributed through community organisations, charities and timebanks in the UK but as soon as it’s proven its worth, it will be taken internationally.

Time is a universal means of exchange, a universal measure of account and a universal store of value.

Got no money, then you’re bound to have time? Give time to community, get time from community. That’s what we intend to incentivise and reward.

Time converted into Points becomes the currency by which a community’s size (number of members) and strength (number of transactions) can be measured. This might have profound implications for capitalism if we get it right.

And what gets measured gets done, right? So why not ‘do’ community?

We see our communities as a whole, and note that they are full of underused resources. Unemployed people, empty shops, off peak bus, cinema and theatre seats.

We the community will persuade local and national businesses to accept our Points in exchange for the stuff they waste. We might even buy one of their very expensive hot-dogs when we get there, just to say thanks for recognising me and my contribution.

Me and my mates are sick of all the stuff that they waste. We’ll show them what a sustainable economy looks like by telling our story better than any politician ever will.

Our numbers will tell our story and what they add up to will defy the odds.

Unfortunately, having seen the light, the IMF then recanted at the end of the paper:

“In particular, the results do not imply that fiscal consolidation is
undesirable. Virtually all advanced economies face the challenge of fiscal adjustment in
response to elevated government debt levels and future pressures on public finances from
demographic change. The short-term effects of fiscal policy on economic activity are only
one of the many factors that need to be considered in determining the appropriate pace of
fiscal consolidation for any single country.”

All they were doing in this paper was countering criticism that their previous analysis had included outliers, which distorted the findings. They are still fervent believers in austerity, really – just at a slower pace.

“No wonder austerity is the equivalent of Kryptonite to the global consumption-dependent Status Quo. But there is another dynamic behind the panic and fear austerity has provoked, a dynamic I have characterized as The Rising Wedge Model of Breakdown, which builds on the well-known Ratchet Effect”

Unfortunately we live within a corrupt country, part of the larger corrupt world.
Financed by corrupt banks, run by corrupt management, and we are led by corrupt politicians.
Given that none accept their corruption is the problem, or the cause of the problem, we are then on a journey with no end.
1 Timothy Chapter 6 Verse 10

I am reading Rowbotham’s Grip of Death; only part way through but the arguments as I understand them are compelling: because we have a financial system whereby commercial banks create nearly all money, out of thin air, as debt, we are destined to forever live in a debt spiral. The shortage of debt free money forces consumers and businesses to borrow; debt interest payments are built into the price of goods and services, meaning that consumers lack the genuine purchasing power to buy the goods and services they need, and we are dependent on wages as a means to consume; there is a constant pressure to create jobs, whether or not products or services are genuinely required.

Debt fuelled growth has promoted the idea that we have over the decades been becoming increasingly wealthy, using the concept of GNP as a measure of wealth; but this is a fallacy. The rise in consumer debt has continually outstripped growth in GNP, and we are more indebted than ever. We are stuck in an endless, futile, and ultimately destructive (for the planet and ourselves) pursuit of economic growth as the only means to perpetuate the illusion of wealth. And he explains how a debt based finance system inevitably results in continuous cycles of boom and bust.

Richard, I’ve no doubt you are familiar with his book; what do you make of his arguments? (Haven’t got to the end, but I assume he is going to argue for some form of debt free money.) Is this radical approach something we should be pursuing?

I’m no economist, but in view of the state of the planet, it would make sense to adopt some system that didn’t require the ever increasing utilisation of scarce natural resources.

Richard you’re assuming – without any evidence – that the reduction in tax revenue will not be funded from the cashable savings produced by people incentivised to solve their own problems. For government to achieve a more competitive ecomomy it needs to find a more efficient marketplace that effectively matches underused resources with unmet needs.

That’s where information and the knowledge economy fits in but the currency that facilities the exchanges and produces the motivations to act is one backed by time. Time spent contributing to the common good.

The tax system should make the polluter pay by penalising waste in all its forms but should be counterbalanced with a complementary currency that rewards the opposite behaviour. This provides people with the means to clearly identify good choices from bad choices and a common cause that inspires people of all ages to join in the quest to elimimate waste.